AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2022 (5) TMI 1523
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.... in computing total income (d) disallowance of miscellaneous expenses relating to Penalty (e) Levy of interest u/s 234C Accordingly, all these grounds are dismissed as Not Pressed. Ground No.27 relates to levy of interest u/s 234B and 234D. Since it is consequential in nature, it does not require specific adjudication. 3. Remaining grounds give rise to the following issues:- (a) Transfer pricing adjustment in respect of Reimbursement of expenses. (b) Disallowance of Vehicle lease rentals (c) Restricting the deduction claimed u/s 10A of the Act (d) Disallowance of Provision for sub-contracting expenses. 4. The assessee is engaged in the business of software development and providing IT enabled services. It is an 100% export oriented unit registered under STPI scheme. It was earlier known as Tesco Hindustan Service Centre P Ltd. It is a company belonging to Tesco Stores Ltd, a company incorporated in UK. 5. The first issue relates to the Transfer pricing adjustment made in respect of reimbursement of expenses. The facts relating thereto are set out in brief. The TPO noticed that the assessee has reimbursed expenses to its Associated Enterprises to the tune of R....
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....nce the arms length price for payment towards intra group services Rs.2,29,82,094/- would be treated as NIL or to the extent it is shown that the benefit actually derived from such payment by applying CUP method." The Ld DRP upheld the transfer pricing adjustment made by the TPO. 5.1 The Ld A.R submitted that the TPO as well as Ld DRP has not properly understood the nature of transaction with regard to reimbursement of share based payments. The Ld A.R submitted that the AE has devised "International Bonus Plan" for issuing shares to the employees of the group. Accordingly, the AE has issued shares as an incentive to certain employees of the assessee who satisfied certain criterian as part of their compensation. Since these shares are issued at free of cost to the employees of the assessee, the AE has cross charged the cost of shares to the assessee. He submitted that these payments have been included in the cost of services provided by the assessee to its AE in Software development services and ITE services. Accordingly, the above said cost has been re-charged to the AE with a markup. The Ld A.R submitted that this expenditure is part of operating cost and hence this transaction....
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....services' and accordingly, it has been charged back to the AE with mark-up. We notice that the shares were issued at free of cost to the "employees" of the assessee and hence the assessee has reimbursed the cost of shares to the AE, meaning thereby, the assessee has incurred this expenditure on behalf of its employees only. In this scenario, in our view, the TPO was not correct in treating it as non-beneficial shareholder services, since the issue of shares was to the employees of the assessee as part of incentive plan designed for the employees. Accordingly, we are of the view that the cost of reimbursement of this amount was an item of expenditure incurred by the assessee on behalf of its employees and hence it should form part of operating cost of the assessee. The Ld A.R submitted that the above said reimbursement was included as a part of the cost of services provided to its AE. We also find that the treatment so given by the assessee also finds support from Rule 10TA(j), which defines the expression "operating expenses". Hence we are of the view that this reimbursement forms integral part of cost of services provided by the assessee and accordingly, it cannot be treated as se....
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....ct. The assessee had claimed deduction u/s 10A to the tune of Rs.74.50 crores. After the direction given by DRP, the deduction worked out to Rs.90.68 crores. However, the AO restricted the claim to the extent of Rs.74.50 crores, as originally claimed by the assessee. 7.1 The AO, in the draft assessment order, reduced following expenses from Export turnover for computing deduction u/s 10A of the Act:- Telecommunication expenses - 2,88,23,733 Freight expenses - 21,02,018 Insurance - 5,72,180 Expenditu....
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.... What is allowable as per law should have been allowed by the AO. Accordingly, we direct the AO to allow deduction u/s 10A of the Act as per law, irrespective of the quantum of deduction claimed by the assessee. 8. The next issue contested by the assessee relates to disallowance of sub-contracting expenses of Rs.14,69,04,475/-. The assessee had made yearend provision for the above said amount towards sub-contracting expenses payable by it. Since the assessee did not deduct tax at source u/s 194C of the Act, the AO disallowed the same u/s 40(a)(ia) of the Act. The Ld DRP directed the Assessing officer to verify the claim in accordance with law. The AO retained the disallowance in the final assessment order after examining the claim. 8.1 The Ld A.R submitted that the yearend provision has been reversed in the subsequent year and further the TDS has been deducted when payments were actually made to the sub-contractors. Accordingly, he submitted that the AO was not right in disallowing the claim u/s 40(a)(ia) of the Act. Alternatively, the Ld A.R submitted that the assessee should be allowed deduction in the subsequent year, when the TDS was deducted. 8.2 We heard Ld DR and perused ....